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Revised Internet tax law could cost state

SANTA FE – A bill making its way through Congress could cost New Mexico state government – and cities and counties statewide – roughly $44 million in annual tax revenue, according to a report from a nonpartisan national think tank.

On the flip side, it would also mean a tax break for thousands of New Mexico residents and businesses by eliminating a monthly tax on Internet access.

New Mexico is one of seven states that levy a tax on Internet access, according to the Washington D.C.-based Center on Budget and Policy Priorities.

Unlike the sales tax model used by many states that taxes only goods, New Mexico has a gross receipts tax that is imposed on most goods and services.

The “all-inclusive” nature of that tax means Internet service has automatically fallen under the definition of a taxable service, said Richard Anklam, the president and executive director of the New Mexico Tax Research Institute.

“We’ve already taxed it, and we’ve always taxed it, so that (tax revenue) is money we’d have to get from somewhere else,” Anklam said.

In Gov. Susana Martinez’s administration, economists have been studying the issue closely, a Department of Finance and Administration spokesman said Wednesday.

“We would be concerned about any federal legislation that would affect the state budget, and we will continue to monitor this issue for additional developments,” DFA spokesman Tim Korte told the Journal .

The bill, which was approved Tuesday via voice vote in the U.S. House of Representatives, would prohibit state and local governments from taxing Internet access. Named the Permanent Internet Tax Freedom Act, it still must be approved by the U.S. Senate before landing on President Barack Obama’s desk for final action.

A law first passed in 1998 and renewed several times has barred any new state and local taxes on Internet service. However, taxes already in place – like New Mexico’s – have been allowed to continue, a practice that would be halted by the legislation.

Members of New Mexico’s congressional delegation are split on the bill.

Rep. Michelle Lujan Grisham, D-N.M., has opposed it over concerns about state revenue impacts. Rep. Ben Ray Luján, D-N.M., has supported it, with a spokesman saying the legislation “encourages greater access to the Internet” and could improve access in rural parts of the state.

Rep. Steve Pearce, R-N.M., the third member of the state’s House delegation, also voted in favor of the bill.

New Mexico has about 1.4 million Internet broadband connections, a figure that includes personal and business accounts, according to the Federal Communications Commission. Some accounts, such as those of nonprofit groups, are not taxed.

The $44 million revenue hit estimate for New Mexico released by the Center on Budget and Policy Priorities was based on that figure and the state’s tax rate, said the study’s author, Michael Mazerov.